1.
RAUL SESBRENO VS CA, DELTA MOTORS AND PILIPINAS BANK
FACTS:
On 9 February 1981, petitioner Raul Sesbreno made a money
market placement of P300,000 with Philippine Underwriters
Finance Corp or (Philfinance) maturing on 13 March 1981;
On the same day, Philfinance issued the ff to petitioner:
o Certificate of Confirmation of Sale, without recourse of one
Delta Motors Corp. promissory note (DMC PN);
o Certificate of Securities Delivery Receipt indicating the sale of
DMC PN to petitioner;
o Post-dated checks worth P304,533 payable on the maturity date
of the petitioners investment with petitioner Sesbreno as
payee, Philfinance as drawer, and Insular Bank of Asia and
America as drawee;
On 13 March 1981, petitioner Sesbreno sought to encash the
postdated checks but they were dishonored for insufficiency of
funds;
On 26 March 1981, Philfinance delivered to petitioner DCR No.
10805 issued by respondent Pilipinas Bank;
On 2 April 1981, petitioner approached Ms. Elizabeth of Pilipinas
Bank and handed her a demand letter informing that his place
with Philfinance reflected in DCR No. 10805 had remained unpaid;
Petitioner examined the original DMC PN and found that:
o The security had been issued on 10 April 1980 and would
mature on 6 April 1981;
o It had a value of P2,300,833 with Philfinance as payee and
respondent Delta Motors Corp as maker; and
o On the face of the PN was stamped non-negotiable
After several subsequent demands, neither Philfinance nor
Pilipinas bank released the DMC PN;
Thereafter, petitioner also demanded respondent Delta for the
partial satisfaction of DMC PN since they payee therein
(Philfinance) had assigned to him the PN;
However, Delta denied liability on the PN explaining that
Philfinance and Delta had a previous agreement of offsetting DMC
PN against Philfinances other PN issued in favor of Delta;
In the meantime, Philfinance was placed under joint management
of Securities and Exchange Commission and Central Bank.
Pilipinas Bank delivered to SEC the subject DMC PN;
Since petitioner had failed to collect his investment, he filed an
action for damages against respondents Delta and Pilipinas Bank;
RTC and CA dismissed the case saying that only Philfinance is
liable; hence, this petition;
On appeal, petitioner admits that DMC PN was non-negotiable but
contends that the PN had been validly transferred to him by
assignment; as such Delta, as debtor-maker of the PN, was
obligated to pay petitioner the portion of that PN assigned to him
ISSUE: Whether Delta is liable for a non-negotiable PN, when it was
assigned to petitioner Sesbreno
RULING: No.
(L): A non-negotiable instrument may not be negotiated; but it may be
assigned or transferred, absent an express prohibition against
assignment or transfer written on the face of the instrument
(A): In this case, while the DMC PN was marked non-negotiable, it was not
stamped non-transferrable nor non-assignable and contained no
stipulation prohibiting Philfinance from assigning or transferring it.
There was also no such prohibition in the Letter of Agreement between
Delta and Philfrance offsetting a previous PN. In fact, the SC adduced that
Delta invested with Philfinance through a money market placement worth
P4,600,000 on 10 April 1980 but promptly borrowed back P4,000,000 by
issuing two PNs: DMC PN 2730 and DMC PN 2731 dated 10 April 1980.
Hence, Philfinance was left with only P600,000 and two PNs from Delta.
Philfinance did not need to get Deltas consent for the enforceability of the
assignment of PNs.
Perez vs CA The money market is a market dealing in standardized short-term credit
instruments where lenders and borrowers do not deal directly with each other but
through a middle man or dealer in the open market. It involves commercial papers which
are instruments evidencing indebtedness of any person or entity... which are issued,
endorsed, sold or transferred in any manner conveyed to another person or entity without
recourse.
The money market is an impersonal market free from personal considerations. The
market mechanism is intended to provide quick mobility of money and securities. The
issuer of a commercial paper in the money market necessarily knows in advance that it
would be expeditiously transacted and transferred to any investor/lender without need
of notice to said issuer. In practice, no notification is given to the borrower or issuer of
commercial paper of the sale or transfer to the investor.
However, it must be noted that at the time Philfinance sold part of its
rights under DMC PN 2731 to petitioner Sesbreno, no compensation had
taken place yet since the PN No. 143-A has not yet matured. However,
petitioner notified Delta of his rights as assignee after compensation had
taken place by operation of law because the offsetting instruments had
both reached maturity.
At the time Delta was first put notice of the assignment, DMC PN had
already been discharged by compensation. Since assignor Philfinance
could not have then compelled a new payment from Delta, so does the
assignee-petitioner. Since petitioner failed to notify Delta at any time
before the maturity of DMC PN of the assignment, the Court is compelled
to uphold the defense of compensation raised by respondent Delta.
2. CONSOLIDATED PLYWOOD VS IFC LEASING
FACTS:
Petitioner corporation is engaged in logging business. In 1978, it
needed two additional units of tractors for opening of additional
roads and logging operations.
Industrial Products Marketing (seller-assignor) offered to sell to
petitioner corporation two used tractors;
The seller-assignor inspected the jobsite and assured petitioner-
corp that the used tractors were fit for the job, and gave a 90-day
warranty;
With such assurance and warranty, petitioner-corp agreed to
purchase the tractors and paid P210,000 as downpayment;
On 5 April 1978, the seller-assignor:
o issued sales invoice for the tractors;
o executed a Deed of Sale with chattel mortgage with a
promissory note (PN);
o executed a Deed of Assignment where it assigned its rights and
interest in the chattel mortgage in favor of respondent IFC
Leasing; and
o delivered the tractors.
However, after only 14 and another 9 days, the tractors broke
down; and the seller-assignors mechanics failed to fix it because
the tractors were no longer serviceable;
As a result, the road building and logging operations were delayed
and petitioner advised the seller-assignor that the payments of
the installments in the PN would likewise be delayed until seller-
assignor fulfills its obligation under the warranty;
Since the tractors were no longer serviceable, petitioner asked
seller-assignor to pull out the units and have them recondition,
and offer them for sale where the proceeds would be given to
respondent IFC Leasing;
The seller-assignor did not respond despite several follow-ups;
until a complaint was filed by respondent IFC Leasing against
petitioner-crop for recovery of principal sum and accrued
interest;
RTC and CA ruled in favor of respondent IFC Leasing, hence this
petition.
Petitioner-corporation contend that:
o The PN is not a negotiable instrument;
o Thus, respondent is not a holder in due course, but merely an
assignee of the PN;
o And petitioners may raise against respondent all defenses
available to it as against the seller-assignor; and finally,
o The petitioners are not liable for the payment of PN, if at all, the
respondent may recover only from the seller-assignor
ISSUE: Whether the promissory note is a negotiable instrument
RULING: No.
(L): Sec. 1, NIL For an instrument be negotiable, it must be payable to
order or bearer.
Sec. 8, NIL The instrument is payable to order when it is drawn payable
to the order of a specified person or to him or his order.
Campos notes - Without the words or order or to the order of, the
instrument is payable only to the person designated therein and is
therefore non-negotiable. Any subsequent purchaser will not enjoy the
advantages of being a holder of a negotiable instrument, but will merely
step into the shoes of the person designated in the instrument and will
be open to all defenses available against the latter.
(A):
1. On its face, the PN is not a negotiable instrument, and the respondent
remains a mere assignee.
For value received, I/we jointly and severally promise to pay to the INDUSTRIAL
PRODUCTS MARKETING, the sum of (xxx)
2. Records show that respondents counsel admitted that what is
assigned are rights of the mortgagee.
3. Even conceding that the PN is a negotiable instrument, the respondent
still cant be a holder in due course because records show that the Deed of
Sale with chattel mortgage with PN, the Deed of Assignment and the
Disclosure of Loan/Credit Transaction were all executed on the same day.
Therefore, respondent IFC Leasing had knowledge that seller-assignors
right to collect the purchase price was subject to the condition that the
tractors were not defective. And if they were defective, the respondent
would be subject to the defense of failure of consideration and cannot
recover the purchase price from petitioners.
4. Respondent failed to prove that it had no knowledge of any fact that
justifies its act of taking the PN as not amounting to bad faith. In
installment sales, the buyer usually issues a note payable to the seller to
cover the purchase price. In pursuance of a previous arrangement with
the seller, a finance company pays the full price and the note is indorsed
to it, subrogating it to the right to collect the price from the buyer with
interest. Where the goods sold turn out to be defective, the finance
company will be subject to the defense of failure of consideration and
cannot recover the purchase price from the buyer.
Sec. 52, NIL A holder in due course is a holder who has taken the instrument in good faith
and for value; and at the time it was negotiated to him, he had no notice of any infirmity in
the instrument;
Sec. 56, NIL To constitute notice of an infirmity in the instrument, the person to whom it
is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of
such facts that his action in taking the instrument amounts to bad faith.
Adopting the ruling in Commercial Credit Corp. vs Orange County Machine Works, the
Court ruled that when a finance company actively participates in a transaction of this type
from its inception, it cannot be regarded as a holder in due course of the note given in the
transaction.
3. DE LA VICTORIA (fiscal and garnishee)VS HON. BURGOS and RAUL
SESBRENO
FACTS:
Herein respondent Raul Sesbreno filed a complaint for damages
against Asst. City Fiscals Mabanto and Rama. RTC ordered
defendants Mabanto and Rama to pay P11,000 to Sesbreno;
Although final and executory, this order was questioned by
defendants before the CA. However, a writ of execution was still
issued;
On 4 February 1992, a notice of garnishment was served on
petitioner Loreto de la Victoria as City Fiscal of Mandaue where
defendant Mabanto was detailed.
The notice directed petitioner not to disburse, transfer, release or
convey the salary checks or other checks, monies or cash due or
belonging to Mabanto, under penalty of law;
On 10 March 1992, respondent Sesbrno filed a motion for
examination of garnishes before RTC;
On 25 May 1992, the petition before the CA was dismissed, thus
the RTC, finding no more legal obstacle to act on motion of the
garnishees, directed petitioner de La Victoria on 4 November
1992 to submit his report showing the amount of garnished
salaries of Mabanto;
Respondent filed a motion requiring petitioner to explain why he
shall not be cited in contempt of court for failing to comply with
the order of 4 November 1992;
Petitioner moved to quash the notice of garnishment claiming he
was not in possession of any money, funds or credit belonging to
 Mabanto except his salary and RATA checks but said checks were
not yet properties of Mabanto until delivered to him;
The RTC ordered petitioner to immediately comply with its order
of 4 November 1992, claiming that:
o The checks of Mabanto had already been released through
petitioner by the DOJ;
o Upon service of the writ of garnishment, petitioner as custodian
of checks was obligated to hold them for the judgment creditor;
o Petitioner became a forced intervenor in the case;
o There was no sufficient reason for petitioner to hold the checks
because they were no longer government funds and presumably
delivered to the payee
o However, the Court found no contempt on the part of petitioner
because the latter sent an explanation that the notice of
garnishment should have been sent to the Finance Officer of DOJ
since petitioner has no authority to segregate the salary of
Mabanto;
Petitioners Motion for Reconsideration was denied, hence this
petition.
On appeal, petitioner reiterates that the salary checks were not
owned by Mabanto because they were not yet delivered to him,
and petitioner as garnishee has no legal obligation to hold and
deliver them to the RTC to be applied to Mabantos judgment debt;
ISSUE: Whether a check still in the hands of the maker or its authorized
representative is owned by the payee before the physical delivery to the
latter
RULING: No.
(L): Sec. 16, NIL Every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving
effects thereto And where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid and intentional
delivery by him is presumed until the contrary is provided.
As ordinarily understood, delivery means the transfer of the possession
of the instrument by the maker or drawer with intent to transfer title to
the payee and recognize him as the holder thereof.
(A): In this case, as Asst. City Fiscal, the source of Mabantos salary is
public funds in the form checks from the DOJ.
The RTC claims that the checks were already released by DOJ, and upon
service of the writ of garnishment by the sheriff, the petitioner was
obligated to hold the checks for judgment creditor. However, RTCs
presumption is not conclusion because of the last portion of Sec. 16
until the contrary is provided which was deleted by the RTC for no
apparent reason.
The Court ruled that inasmuch as the checks had not yet been delivered
to Mabanto, they did not belong to him and still had the character of public
funds.
In Tiro vs Hontanosas, the Court ruled that: The salary check of a government officer does
not belong to him before it is physically delivered to him. Until that time, the check belongs
to the government. Thus, before the actual delivery, the payee has no power over it; he
cannot assign it without consent of the Government.
Commission of Public Highways vs San Diego explained the nature of public funds: The
functions and public services rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate and specific objects, as
appropriated by law.
(C): Petition granted. The petitioner was justified in refusing to garnish
the checks to Mabantos judgment jebt.
4. DEVELOPMENT BANK OF RIZAL VS SIMA WEI, ASIAN INDUSTRIAL
CORP. PLASTIC, PRODUCERS BANKO OF THE PHILIPPINES
FACTS
In consideration of a loan from petitioner bank, respondent Sima
Wei executed and delivered to the bank a PN engaging to pay the
bank or order P1,820,000 on or before 24 June 1983 at 32% per
annum.
After making partial payments, Sima Wei further issued two
crossed checks payable to petitioner Bank drawn against China
Bank for the amounts of P550,000 and P500,000 to settle the
balance;
However, these two checks were not delivered to petitioner bank;
These checks came into the possession of respondent Lee Kian
Huat who deposited the checks without petitioner banks
 indorsement to the account of respondent Plastic Corp in
Producers Bank.
The Manager of Producers Bank, relying on the assurance of the
President of Plastic Corp, accepted the checks and credited them
to Plastic Corps account despite the fact that the checks were
crossed and payable to petitioner Bank, and bore no indorsement
from the latter;
On 6 July 1986, petitioner Development Bank of Rizal filed a
complaint for sum of manoy against respondents Sima Wei, Asian
Plastic Corp., and Producers Bank of the Philippines:
o To enforce payment of balance P1,032,450 on a PN executed by
Sima Wei;
o To enforce payment of two checks executed by Sima Wei,
payable to petitioner bank, and drawn against China Bank, in
order to pay the balance due in the PN
Respondents filed separate Motions to Dismiss for lack of cause of
action; and these were granted by the RTC and CA; hence this
petition;
ISSUE:
1. Whether the petitioner bank can enforce payment of two checks
executed by Sima Wei. NO.
2. Whether the petitioner bank can enforce payment balance on the PN
executed by Sima Wei. YES.
RULING:
(L): Sec. 16, NIL Every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving
effects thereto
(A): The petitioner bank has a cause of action against Sima Wei only.
A negotiable instrument is not only a written evidence of a contract right but is also a
species of property. Just as a Deed to a piece of land must be delivered in order to convey
title to the grantee, so must a negotiable instrument be delivered to the payee to evidence
its existence as a binding contract. Thus, the payee of a negotiable instrument acquires no
interest with respect thereto until its delivery to him. Without the delivery that is intended
to give effect to the instrument from the drawer to payee, the drawer can have no liability
on the instrument.
1. In this case, petitioner Bank sued Sima Wei on the PN, and the other
respondents on the two checks. However the RTC correctly rules that:
without delivery of the two checks to petitioner bank, the petitioner bank
did not acquire any right or interest therein and cannot assert any cause
of action founded on the checks against all the respondents. Since
petitioner bank never received the checks, it never owned them nor
acquired any interest therein. Thus anything which the respondents did
could not prejudice the petitioner bank.
2. But the Supreme Court rules that petitioner bank has a right of action
against Sima Wei with regards the PNs because the checks were never
delivered to petitioner bank; and assuming there was delivery, such
delivery of checks does not constitute payment unless they are cashed or
the value if impaired due to the fault of the creditor.
5. METROPOL FINANCING CORP. VS SAMBOK MOTORS COMPANY
FACTS:
Dr. Javier Villaruel executed a promissory note in favor of Ng
Sambok Sons Motors worth P15,939 payable in 12 monthly
installments beginning 19 May 1969 with 1% interest rate per
month and an acceleration clause with additional 25% interest
rate in case of nonpayment of any of the installments;
Respondent Sambok Motors, sister company of and under the
same management as Ng Sambok Sons, negotiated and indorsed
the note in favor of petitioner Metropol Financing Corp, stating:
Pay to the order of Metropol Financing Corp with recourse. Notice of
demand, dishonor, protest, and presentment are hereby waived.
Dr. Villaruel defaulted on the payment; so petitioner Metropol
presented to the former the PN. However, Dr. Villaruel still failed
to pay the PN;
Thus, petitioner Metropol notified respondent Sambok as
indorsee that the PN had been dishonored and demanded
payment; but Sambok failed to pay as well;
On 26 November 1969, petitioner Metropol filed a complaint for
collection of sum of money;
Respondent did not deny its liability but contended it could not be
obliged to pay until after Dr. Villaruel has been declared insolvent;
 Dr. Villaruel died; so the CFI dismissed the case against him; so
petitioner filed for summary judgment;
Respondent Sambok argued that
o its only a qualified endorser;
o it does not warrant that it will pay the amount to the holder if
the PN is dishonored;
o it only warrants the ff:
a) the instrument is genuine;
b) he has a good title to it;
c) all prior parties had capacity to contract;
d) he has no knowledge of any fact that would impair the
validity of the instrument

ISSUE: Whether Sambok is a qualified endorser and therefore relieved

from liability;
RULING: No.
(L): A qualified indorsement constitutes the endorser a mere assignor. It
may be made by adding the words without recourse, and such an
indorsement relieves the endorses of the general obligation to pay if the
instrument is dishonored;
Recourse means resort to a person who is secondarily liable after the
default of the one primarily liable. As such, a person who indorses without
qualification (or with recourse) engages that on due presentment, the
note shall be accepted/paid; and if it be dishonored, such person will may
the amount thereof to the holder.
(A): Clearly, respondent Sambok is not a qualified endorser. In this case,
respondent endorsed the PN with recourse, thus making it a general
endorser who is secondarily liable in case Dr. Villaruel fails to pay the PN.
Further, it is proved that the PN is without qualification because Sambok
waived the notice of demand, dishonor, protest and presentment.
Samboks liability becomes the same as that of the original obligor, so the
holder need not even proceed against the maker before suing the
endorser.